WeWork, Bankers Have Discussed Laying Off One-Third of Workforce

The discussed steps weren't enough to save Neumann’s job, however, as board directors from SoftBank and Benchmark doubted his ability to implement drastic changes. WeWork announced on Tuesday that the embattled CEO was stepping down. He will stay on as non-executive chairman. Co-president and CFO Artie Minson and vice chairman Sebastian Gunningham have been named co-CEOs of the company.

The discussed austerity plan would be an attempt to show that the company has a path to profitability if it focuses more on expanding its main office leasing business in large, expensive markets where big companies are looking for space, the people said.

The proposal would be another hit to a more than 15,000-person workforce where morale has been sinking, according to current and former employees. The company has grown rapidly from 4,000 employees at the end of 2017. 

WeWork’s financial stability has been in doubt since it was forced to postpone its IPO amid a dismal reception by prospective investors and revelations about Neumann’s erratic behavior.  The co-working company, last valued privately by SoftBank at $47 billion, discussed an initial valuation as low as $15 billion on the public markets due to weak investor demand. 

WeWork didn’t respond to a request for comment on the austerity plans.

Bankers and investors have been reaching out to seasoned real estate executives to informally pitch them on joining the company or to get feedback on the business plans, people familiar with the matter said.

The company burned through about $1 of cash for every dollar of revenue it generated in the first half of the year. Without new funding or lower expenses, the amount of cash that WeWork can freely spend could shrink to $400 million by next March from $1.9 billion, according to an analysis by The Information.

WeWork executives and bankers are now trying to determine whether their plans would give the company a chance to raise more funds, either privately or through an IPO. 

One dramatic change being floated would include spinning out or shutting down many of the ancillary businesses that WeWork has acquired or started over the years. Those include a private elementary school in New York, a gym called Rise by We, residential apartments in New York and Washington, D.C., and a marketing software company called Conductor. There are no plans for Flatiron, a school that teaches computer programming, to shut down, a person familiar with the matter said. 

There are other symbols of WeWork’s big spending. The company earlier this year agreed to pay $850 million and planned extensive renovations to put its corporate headquarters in a historic New York City department store.

The changes under discussion also would require WeWork to reduce focus on or pull out of office-leasing markets that are hurting its business. That could include China, where demand for offices has been weaker than expected. The company said in its IPO filing that its contribution margin in its office-leasing portfolio would have been three percentage points higher if it excluded China. WeWork defines contribution margin as membership and service revenue minus expenses to run buildings.